Debt Ratios for Home Lending

Your ratio of debt to income is a tool lenders use to determine how much of your income is available for your monthly home loan payment after all your other recurring debts are fulfilled.

Understanding your qualifying ratio

For the most part, conventional mortgages require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing costs (this includes principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).

The second number in the ratio is what percent of your gross income every month that should be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto/boat payments, child support, and the like.

For example:

A 28/36 qualifying ratio

• Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
• Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
• Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, please use this Loan Qualifying Calculator.

Just Guidelines

Remember these ratios are just guidelines. We'd be happy to help you pre-qualify to help you figure out how much you can afford.

Selectplus Lending can answer questions about these ratios and many others. Call us at (818)645-7035.